Beazer Homes Logs 'Disappointing' Quarter

Atlanta-based builder's fourth quarter was its worst in a year; however, it did modestly increase closings and orders in its fiscal year.

Typically, the fourth quarter of its year is the best for Beazer Homes USA, whose fiscal year ends Sept. 30. This year, though, dragged down by fewer closings, impairments and discounted inventory home sales, the last quarter of Beazer's fiscal year proved to be its worst.

Beazer Homes lost $57.4 million, or 78 cents per share in its fourth quarter this year. Last year in the same quarter it made $33.5 million, or 86 cents per share. "While we were pleased with overall progress in fiscal 2010, we are disappointed with the quarter," said CEO Ian McCarthy during the company's Friday call with analysts.

The company did trim its losses in 2010. Beazer lost $29.9 million, or 50 cents per share during the fiscal year, compared to a $175.5 million loss ($4.54 per share) in 2009.

McCarthy highlighted a handful of major accomplishments for 2010: New home orders and closings were both up modestly for the first time in five years. The company closed 4,645 homes, a 5.9% year-over-year increase. Cash was up by $19.4 million. Debt was down $297 million.

But there wasn't much good to say about the quarter when closings declined to 1,189, down nearly 30% from the same period last year. New orders were down by 20% to 810 homes, compared to the previous quarter.

And the homes that Beazer did sell received an extra sales price discount of about 1% because many were unsold spec homes that the company wanted to move out of inventory quickly.

McCarthy said there was extra pressure to move the homes because "you have to recognize that this was our year-end, and there is always incentive to push sales by year-end. We were certainly looking for year-over-year (sales) improvement. To post numbers that were positive was a real psychological goal for us."

Plus, "the specs don't look any prettier the second day out," he added.

There were also higher costs in the quarter because Beazer is in the process of adding 61 more communities that it says should bring slightly higher margins (up 1% to 2%) when they are opened. In the company's fourth quarter only about 10% of orders and 5% of closings were from the newer communities. Next year, Beazer is hoping to have new communities make up roughly 25% of its sales.

But nobody at Beazer is expecting 2011 to be much better than 2010 overall. "We are targeting gross margins similar to 2010, but trying hard to do better," said McCarthy.

At the same time, there is hope that normal seasonal patterns of demand will occur, absent the distortion of home buyer tax credits this year. From a nationwide perspective, McCarthy said he expects home starts rise slightly in 2011, to the 550,000- to 600,000-unit range, and selling prices to be somewhere between flat and down 3%.

As did the other public home builders who have reported results, Beazer offered information about what it perceives its risk of having to buy back mortgages it made that have since gone into default.

McCarthy said fewer than 100 loans have been sent back to the company in the past three years for reimbursement. "To date, we have not been required to fund any of those," he said. The company's reserve for such problems is less than $1 million.

McCarthy said Beazer is working to differentiate its product from other home builders' offerings and from foreclosures by focusing on constructing extremely "green" homes to customers. Since other builders have also begun to build homes that are more energy-efficient , healthy, and water-smart, McCarthy said there is an "arms race" going on to build homes that are more and more energy efficient. He said that Beazer plans to "raise the bar" by including its highest level of green options on all its Houston homes next year.

Teresa Burney is a senior editor for BUILDER and BIG BUILDER magazines.

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